Skip to content


Veerammal and anr. Vs. Kr. L. Lakshmanan Chettiar and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai High Court
Decided On
Case NumberSecond Appeal No. 1302 of 1959
Judge
Reported inAIR1960Mad529
ActsTransfer of Property Act - Sections 58, 59, 79, 91 and 92; Indian Registration Act - Sections 17
AppellantVeerammal and anr.
RespondentKr. L. Lakshmanan Chettiar and anr.
Cases ReferredKhushal v. Punamchand
Excerpt:
.....evidence - section 59 only exempts from its operation equitable mortgage created by deposit of title deeds - same does not legalise creation of such mortgage otherwise than by delivery. - - in the written statement the case was that the title deeds and another documents relating to properties in aruppukottai, had been entrusted with a clerk of the plaintiff for safe custody, that when the documents were returned, the fact that these relevant documents also were not returned was not noticed, that when subsequently the plaintiff sent a notice demanding the amount claimed in suit the fraud practised by the plaintiff came to light, that the equitable mortgage by deposit of title deeds was not for any specific amount fixing the maximum and therefore vitiates the transaction and that..........there is a widespread practice amongst merchants to create equitable mortgages by deposit of title deeds by way of security as against the supply of goods on credit. on 7-10-1953 clothes of the value of rs. 3000/- we purchased on credit by the first defendant from the plaintiff's shop. on 10-10-1953, according to the plaintiff, the first defendant and his wife veerammal, the second defendant, deposited title deeds with the plaintiff with an intent to create an equitable mortgage for the value of goods supplied on credit and for subsequent amounts that would be due to the plaintiff on dealings. certain payments were made on account.in fact subsequently goods of the value of rs. 6000/- odd have been supplied on credit by the plaintiff. the plaintiff then learnt that the husband and.....
Judgment:

(1) This second appeal is sought to be preferred against the decree and judgment of the learned District Judge of Ramanathapuram at Madurai in A. S. No. 274 of 1957, confirming the decree and judgment of the learned Subordinate Judge of Sivaganga in O. S. No. 30 of 1957.

(2) The case for the plaintiff Lakshmanan Chettiar is: He is carrying on business under the name and style of Lakshmi and Co. in Madurai Town to which provisions of S. 58(f) of the Transfer of Property Act have been extended. The first defendant Kadambaiya Chettiar of Aruppukottai Town was one of his constituents. The first defendant wanted the plaintiff to supply him goods on credit. In Madurai there is a widespread practice amongst merchants to create equitable mortgages by deposit of title deeds by way of security as against the supply of goods on credit. On 7-10-1953 clothes of the value of Rs. 3000/- we purchased on credit by the first defendant from the plaintiff's shop. On 10-10-1953, according to the plaintiff, the first defendant and his wife Veerammal, the second defendant, deposited title deeds with the plaintiff with an intent to create an equitable mortgage for the value of goods supplied on credit and for subsequent amounts that would be due to the plaintiff on dealings. Certain payments were made on account.

In fact subsequently goods of the value of Rs. 6000/- odd have been supplied on credit by the plaintiff. The plaintiff then learnt that the husband and wife (defendants 1 and 2) had colluded and created a usufructuary mortgage in favour of the third defendant Sankaralinga Mooppanar, after obtaining an encumbrance certificate through the first defendant's clerk Soundiah and giving registration copies of the title deeds to the mortgagee, third defendant. The usufructuary mortgage Ex. B 5 in favour of the third defendant is for Rs. 2500/-. The original title deeds are produced in Court by the plaintiff. The plaintiff filed the suit out of which this second appeal arises, for recovery of Rs. 6000/- and is seeking a preliminary mortgage decree on the foot of this equitable mortgage.

(3) The defence was: The husband and wife, defendants 1 and 2, did not deposit the title deeds with the plaintiff. In the reply notice Ex. A13 the defendants 2 and 3 alleged that the husband had double-crossed his wife and created the equitable mortgage to defraud her and that she was going to take criminal and civil proceedings against him. In the written statement the case was that the title deeds and another documents relating to properties in Aruppukottai, had been entrusted with a clerk of the plaintiff for safe custody, that when the documents were returned, the fact that these relevant documents also were not returned was not noticed, that when subsequently the plaintiff sent a notice demanding the amount claimed in suit the fraud practised by the plaintiff came to light, that the equitable mortgage by deposit of title deeds was not for any specific amount fixing the maximum and therefore vitiates the transaction and that there is neither writing nor registration for the creation of this equitable mortgage and the usual memorandum or accompanying promissory note is not forthcoming in this case, and that the subsequent usufructuary mortgage in favour of the third defendant by the second defendant is a bona fide transaction.

(4) Both the Courts came to the conclusion that the delivery of the title deeds was made personally by the husband (first defendant) on behalf of himself and his wife, that the delivery of the documents was to a creditor, that the documents were title deeds relating to immovable properties in regard to which an equitable mortgage could be created, that the delivery was with intent to create a security thereon, that no maximum amount for the security need be fixed, and that the story of the defendants about the husband double-crossing the wife or about the title deeds and other documents being entrusted to the plaintiff's clerk P.W. 1 and their being not returned and the plaintiff exploiting them for putting forward an equitable mortgage was totally false. They gave a preliminary mortgage decree to the L. J. in 1904 1 Ch. 87 (idid) is instructive on the.

(5) I am bound by the concurrent findings of fact that though the deposit of the title deeds with the creditor was physically by the first defendant alone, it was on behalf of both the first and the second defendants, the first defendant acting as the agent of the second defendant with intent to create a security thereon. This is proved by five clinching circumstances. First of all, the practice in Madurai Town of creating equitable mortgage by deposit of title deeds shows that the husband and wife must have created the suit equitable mortgage, for taking goods on credit from the plaintiff.

The wife was vitally interested in the cloth shop of her husband which must have been the means of their livelihood and that therefore she has naturally created this equitable mortgage in regard to her immovable properties by deposit of title deeds delivered through her husband. Secondly, the original title deeds are produced by the plaintiff and the plaintiff could have come into possession of them only in the manner stated by him. On the other hand, the two alternative conflicting versions put forward by the second defendant as to how the plaintiff could have come into possession of them are found to be false.

Thirdly, the second defendant has obtained an encumbrance certificate through her husband's clerk Soundiah on 9-9-1953 obviously with a view to create an encumbrance over the properties for the transaction had or to be had by her husband. Fourthly, both the lower Courts have referred to the mess which the defendants' witness had made of their oral evidence showing that no reliance could be placed on their evidence. Fifthly, the subsequent usufructuary mortgage is found to be a collusive transaction. This is said to have been for raising money for the marriage expenses of the daughters and for educational expenses, though no marriage appears to have been celebrated and no marriage appears to have been in contemplation. Therefore, these concurrent findings of fact, arrived at on acceptable and relevant evidence, are binding on me.

(6) The Courts below have applied the correct law in regard to which an exposition is required, because there is no comprehensive direct authority on this matter so far as this Court is concerned and equitable mortgage by deposit of title deeds is a vital segment of the credit machinery in commercial centres. With expanding commerce it is a subject of topical importance.

(7) The law regarding equitable mortgage by deposit of title deeds, covered by S. 58(f) of the Transfer of Property Act, is the same in England, * in many States in the United States of America and in India. In many States in the United States of America such mortgages are valid, although not a common form of security. But to create an equitable lien in such manner, there must be present in the transaction an intent that a lien should become effective immediately. The mere delivery of deeds and an abstract of title under an oral agreement for the preparation of a mortgage or security deed, being merely preliminary acts to the executed agreement, do not create an equitable lien. Many of the States have repudiated the doctrine of an equitable mortgage by the delivery of title deeds. The repudiation is as a rule based upon the provisions of the Statute of Frauds requiring mortgages to be in writing. These States refuse to recognise an equitable lien by the deposit of title deeds. In New York, an equitable lien cannot be created by the deposit of title deeds or by mere parol agreement to make a mortgage. The English doctrine of an equitable mortgage by the deposit of title deeds without a written agreement, cannot be maintained under the New York statute. The term equitable mortgage is not appropriate in India for the law of India knows nothing of the distinction between legal and equitable estates. But equitable mortgages by deposit of title deeds were accepted in India as equivalent to the simple mortgages after the P. C. decision in Varden Seth Sam v. Luckpathy Rayjee Lallah, 9 Moo Ind App 303, and the law regarding the same has now got embodied in S. 58(f) T. P. Act.

{* Lord Cairns in Shaw v. Foster, (1872) 5 HL 321: It is well established rule of equity that a deposit of document of title without more, without writing, without words of mouth, will create in Equity a charge upon the property referred to.}

(8) The standard treatises setting out the relevant principles are: Fisher and Lightwood's Law of Mortgage (England), 7th Edn, p. 18; Wiltsie on Mortgages (U. S. A), 5th Edn. Vol. I, p. 70; Gour's Law of Transfer, 7th Edn., Vol. II, p. 946 and following: Darashaw on Transfer of Property Act, 1st Edn., p. 500; Mulla's Transfer of Property Act, 4th Edn. (by S. R. Das, Chief Justice of India), p. 357 and following: and the valuable and comprehensive AIR commentaries on the Transfer of Property Act (1950 Edn.) Vol. 2, p. 1038 and following with the Supplement brought up to 30-6-1957.

(9) The requisites of an equitable mortgage by deposit of title deeds are:

(i) There must be a debt;

(ii) Delivery must be by a debtor or his agent;

(iii) Delivery must be in the towns mentioned in the Act;

(iv) Delivery must be to a creditor or his agent;

(v) Delivery must be of documents of title to immovable property; and

(vi) Delivery must be with intent to create a security thereon.

(10) Debt:--The debt may be an existing debt or a future debt. The deposit may be to cover a present as well as future advances, or a general balance that might be due on an account. The mortgage may be extended to cover further advances. In ex parte Kensington (1813) 2 Ves & B 79 Lord Eldon said that it was unnecessary to require the deeds to be put back in the hands of the original owner and then re-deposited by him as security for the former as well as the further advance and this has been followed in India: Himalaya Bank Ltd. v. F. W. Quarry, ILR 17 All 252; Girendro Coomar v. Kumud Kumari Dasi, ILR 25 Cal 611; V. M. R. V. Chettyar Firm v. Asha Bibi, 118 Ind Cas 407 : AIR 1929 Rang 107. (See the wording of S. 58 and Ss. 79 and 92 of the Transfer of Property Act).

Delivery by whom:--In S. 58(a) of the Transfer of Property Act the transferor is called the mortgagor, which term is used in the subsequent sub-clauses, whereas in cl. (f) of the term used is 'a person' for in a security of this nature there is no transfer. Again, the words 'or agent' are not used, as in the latter part, where they are used after the word 'creditor'. However, a deposit may be made by a debtor or an agent duly authorised for that purpose.

Towns mentioned in the Act:--There is no dispute that Madurai city is one of the towns to which the Act has been extended. The restriction to the towns named refers to the place where the deeds are delivered, and not to the situation of the property mortgaged. The properties mortgaged may be outside the towns named, or partly within and partly without, provided the transaction is made within the area specified: Srinath Roy v. Godadhur Das, ILR 24 Cal 348; Imperial Bank of India v. U. Rai Gyaw Thu and Co. Ltd., ILR 1 Rang 637 : AIR 1923 PC 211. The restriction to centres of commerce has been done as a matter of convenience to the mercantile community to enable them to borrow money without the delay of investigation of title and publicity of registration. Quick credit facilities constitute the life blood of commerce.

Deposit with whom to be made:--A good security may be created by a debtor depositing with his creditor the title deeds of his property, freehold or leasehold. A deposit of title deeds as a security is an equitable mortgage. The title deeds must be deposited with a creditor or his agent and no equitable mortgage is created by deposit by a debtor with his wife, or delivery to an attorney to prepare a legal mortgage: Ex parte Coming, (1803) 9 Ves 115, Norris v. Wilkinson, (1806) 12 Ves 192; Ex parte Bulteel, (1790) 30 ER 113.

What title-deeds should be deposited:--It is not necessary in order to create an equitable mortgage that all the title-deeds should be deposited. If the deeds are material evidence of title and are proved to have been deposited with intention of creating a mortgage, it is sufficient; nor is it necessary that the deeds deposited should show a good title in the depositor. The mere deposit of a deed which shows no title in the depositor, who keeps back the others showing his title, does not create an equitable mortgage: (Bhupendranath Basu v. Mt. Wajib-un-Nissa Begam, : AIR1917Pat268 Elizabeth May v. Bhupendranath Bose, : AIR1928Pat304 ; V. E. A. R. M. Chettyar Firm v. A. K. R. M. K. Chettyar Firm, AIR 1929 Rang 65; Ralli Bros. v. Punjab National Bank Ltd., AIR 1930 Lah 920; Ex parte Wetherell (1805) 11 Ves 398 : 32 ER 1141; Venkatramayya v. Narsingarao, 21 Mal LJ 454; Surendra Mohan v. Mohendra Nath : AIR1932Cal589 ).

Proof of intent to create equitable mortgage:--The intent to create an equitable mortgage by delivery or deposit of writings may be established by written documents alone, or coupled with parol evidence; by parol evidence alone; or by inference arising from deposit, where the possession of the documents by the holder cannot be otherwise explained. But an inference that the deposit was made by way of equitable mortgage will not be admitted in contradiction to a written statement, the terms of which, when it exists, will govern the contract, where it is consistent with a security; nor by reason of the possession by a solicitor of his client's deeds, as against a purchaser who does not inquire into the nature of the possession; nor when there is no evidence as to the origin of the possession from which a contract may be inferred. An intention to create an equitable mortgage may be inferred from a delivery of the documents to be held, or a direction to hold them, until the settlement of an account or the execution of a mortgage, or for the purpose of preparing a legal mortgage, for an existing debt. (Fisher and Lightwood's Law of Mortgage 7th Edn. p. 19; Kevaldas v. Chhotabhai : AIR1955Bom454 ; United Bank of India Ltd. v. Lekharam Sonaram and Co. : AIR1958Pat472 ).

(11) An equitable deposit may, both according to the English and Indian Law, be made without any writing and if made in writing it does not require registration. But if the deposit is accompanied by a memorandum stating the circumstances under which the deposit is made, it cannot be contradicted by oral evidence. Section 59 of the Transfer of Property Act only exempts from its operation an equitable mortgage created by deposit of title deeds. It does not legalise the creation of such mortgage otherwise than by delivery : AIR1958Pat472

If, therefore, a writing is executed for the purpose of creating such security it must be registered as provided in the section. It does not matter if it purports to be a mere memorandum unless the memorandum accompanies the deposit in which case the deposit creates the mortgage and the memorandum need not be registered. But this is only where the contract is made expressly by parol. Hence if the memorandum contains a contract of mortgage and is made the basis of the suit, it will not be admitted if it is not registered.

But a mere contract to grant a mortgage is no more compulsorily registrable than a mere contract for sale but, if the creditor relies upon it as constituting a mortgage, and effect cannot be given to it without treating it for all practical purposes as the assignment, it would not be received in evidence for want of registration, and since parol evidence is inadmissible under S. 91 of Evidence Act, the facts to which the document relates cannot at all be legally proved.

Of course, the fact that this section saves such mortgages from its operation leaves the provisions of the Indian Registration Act still intact, and the question of registration must then be approached in the light of that enactment, which lays down a universal rule that all non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title, or interest, whether vested or contingent, of the value of Rs. 100 and upwards, to or in immovable property shall be registered.

The question of registration is then one of construction. If the memorandum is so worded as to be, or is virtually the contract itself, it would indubitably come within the clause and require registration. The test is, is the writing merely a statement that the mortgage has been effected or is it one sole repository of the mortgage contract itself and from which alone the contract of mortgage can be inferred? In short is it an aide-memoire or not? Thus, where the title deeds were deposited with a letter which explained the object of the deposit to be by way of security for a debt which fell due on that date and without which the object of the deposit could not be explained, the letter being the only repository of the agreement, it was held to require registration.

On the other hand, when once a mortgage by deposit is completed, a subsequent document purporting to contain an admission merely of the mortgage transaction would not require registration. Sundarachariar v. Narayan Ayyar Rachpal Mahraj v. Bhagwandas : [1950]1SCR548 ; Krishnayya v. Ponnuswami Ayyar, ILR 47 Mad 398 : AIR 1924 Mad 547; Ramanathan Chettiar v. Dowlat Singjee, AIR 1938 Mad 865; Jagannadham Pillai v. Official Assignee : AIR1931Mad124 Vadamalai Pillai v. Subramania Chettiar, (1923) Mad WN 57 : AIR 1923 Mad 262; Hukamchand Kasliwal v. Radha Kishen ; S. 17(b) Indian Registration Act; see discussion on Gour p. 947; and footnotes (h) and (i) of Mulla p. 361 citing instances in which registration was held to be necessary and instances in which registration was held to be not necessary.

(12) The transfer of Property Act is silent as to the relief afforded to an equitable mortgagee. In England the remedy of an equitable mortgagee, where there is no memorandum to execute a legal mortgage, is foreclosure, and where there is a memorandum, either sale or foreclosure may be asked for. It seems that in India such mortgages were before the Act dealt with like simple mortgages. In ILR 24 Cal 348 it was observed that

'according to the practice of the Court, the appropriate remedy in such a mortgage suit is a decree for sale'.

This Court also holds the same view: Marcar v. Sigg, ILR 2 Mad 239 (PC). In Bombay, however, following the English practice a decree for either sale or foreclosure is allowed: Manekji v. Rustomji, ILR 14 Bom 269; Khushal v. Punamchand, ILR 22 Bom 164. But Parsons J., in delivering the judgment observed, that he was deciding the point irrespective of the Transfer of property Act, which had not been then extended to that state. In England the mortgagee is allowed the stipulated rate of interest on the loan and advances, and in the absence of any stipulation as to interest, it is allowed at four per cent. Expenses and costs properly incurred as for keeping alive the policy of the debtor by the mortgagee are treated as being in the nature of further advances to which they were added.

No interest will, however, be allowed if the payment was delayed owing to the conduct of the mortgagee. Since the equitable mortgagee is not entitled to possession, it follows that he is not entitled to take the rents and profits in the absence of a contract to the contrary, prior to the date of the foreclosure or sale, but if he recovers them from the mortgagor's tenants after notice to them that they were claimed as equitable mortgagee, he cannot be compelled to refund them to the tenants. Moreover, should the equitable mortgagee by any chance obtain lawful possession, then he would be entitled to realise rents and profits from the date of his possession. In other respects his rights and liabilities would, it seems, be those of a mortgagee in possession. (See Gour p. 950).

(13) Bearing these principles in mind, if we examine the facts of this case, we find that all these requirements of law relating to equitable mortgages have been carefully examined and correctly given effect to in the instant case. Therefore, the decrees and judgments of the Courts below are irreproachable. This second appeal is dismissed.

(14) Appeal dismissed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //